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Linda Bilmes Testifies to the House Committee on Veterans’ Affairs

October 6, 2010

Joint testimony of Linda Bilmes, Daniel Patrick Moynihan senior lecturer in public policy, Harvard Kennedy School, and Joseph E. Stiglitz, University Professor, Columbia University, to the House Committee on Veterans’ Affairs about the "The True Cost of the War".Testified: September 30, 2010

Chairman Filner, Congressman Buyer, and Members of the House Veterans Committee:

Thank you for convening this hearing today and for inviting us to testify on the true costs of war.

There is no such thing as a “war for free.” The history of warfare is a tragic cycle of people fighting, killing, wounding, exhausting armies and depleting treasuries followed by burying, taking care of the wounded, reconstructing, repaying war debts, and recruiting fresh troops. The repercussions of war, and the costs of war, persist for decades after the last shot is fired.

Despite this well-worn path, the inevitable costs, the economic consequences and the long-term welfare of the troops are seldom mentioned at the start of a conflict. Even when they are mentioned, the costs and risks are systematically understated. The result is that the burden of financing the war, the social cost of lives lost, quality of life impaired, families damaged and the expense of caring for veterans are typically not provided for in the run-up to conflict.

All wars, whether long or short, have continuing costs associated with the care of those who have fought in them. It is a sobering thought that the peak year for paying out disability claims to World War I veterans did not occur until 1969 – more than 50 years after the armistice. The peak for paying out World War II benefits was in the 1980s – and we have not yet reached the peak cost for Vietnam veterans. Even the Gulf War of 1991, which lasted just six weeks, costs more than $4 billion a year in disability compensation alone.

It is obvious now that the wars in Iraq and Afghanistan have been far more costly (in terms of both blood and treasure) than its advocates suggested at the outset. Even with more realistic estimates, we might have come to the same decision about going to war. But the absence of reliable estimates meant there was no opportunity for a meaningful debate. It has also prevented us from planning ahead for future costs.

The United States has already spent more than a trillion dollars in Iraq and Afghanistan for incremental war costs; in other words, costs that are in addition to regular military salaries, training and support activities, weapons procurement and so on. There are other substantial incremental war-related expenditures across government for items including military medicine, military recruiting, contractors’ life insurance, Social Security disability benefits and paying interest on money borrowed to finance the war.

But these figures do not include the long-term budgetary costs of veterans care, or any estimate of the economic and social costs of the wars.

It may be hard to believe, but we still do not know the true cost of the Iraq war, much less the current war in Afghanistan. The U.S. Government budget is based on cash, rather than accrual accounting. Government financial accounts track inflows and outflows of funds within a fiscal year, ignoring the long-term costs of depreciating equipment, purchasing complex weapons systems and caring for disabled veterans. Basic information about outlays – what has actually been spent – is not readily available. The accounting systems at the Pentagon are notoriously poor at tracking expenditures; the Department has failed its annual financial audit for the past decade. The Congressional Budget Office, the Congressional Research Service, the General Accounting Office, the Iraq Study Group and the Department’s own auditors and Inspector General, have all found numerous discrepancies in the Pentagon’s figures. Expenditures that relate directly or indirectly to the war are fragmented among many different departmental budgets and programs, making it laborious to piece together a complete picture. Additional war funds are appropriated little by little, through supplementary budgets, making it all the more difficult to tally up the total costs.

The most detailed analysis of war costs has been conducted by the Congressional Research Service (CRS). The CRS has noted that none of the known factors in the increasing war costs, including the operating tempo of the war, the size of the force, and the use of equipment, training, weapons upgrades and so forth, “appear to be enough to explain the size of and continuation of increases in cost.” We believe this discrepancy relates to the way the war has been fought, with excessive reliance on expensive contractors and funding for core defense activities getting mixed in with war funding due to poor budgeting and accounting.

The U.S. Government also makes no attempt to capture the economic costs (including those associated with deaths or quality of life impairment of those injured), much less any tracking of how the economy might have fared in the absence of any conflict.

These full costs are not transparent anywhere in the system. Throughout the nine years of conflict in Iraq and Afghanistan, the Congressional Budget Office (CBO) has continued to use accounting frameworks that focus at best on the budgetary costs of war for 10 years, even as the long-term accrued costs of the wars and their impact on the economy have grown more apparent. The only hint of the full costs of providing for military veterans is in the US Treasury’s financial statements for 2009, in the little-read “statement of net costs” which uses accrual methods. According to this document, the US liability for burial and disability benefits for military veterans exceeds $1.3 trillion dollars. (Even this figure – although large – does not reflect the full liability, because it excludes medical care and other benefits). There is no provision anywhere in the budget for how this liability will be paid.

Consequently, the estimate of budgetary costs that is presented to the public and the press is a partial snapshot, based on faulty accounting and incomplete data.

Our work, which is based entirely on government data, was intended to fill this void.

Two years ago we published The Three Trillion Dollar War: The True Cost of the Iraq Conflict, in which we estimated that the total cost to the United States – including military expenditures through 2017, and lifetime health care and disability costs for returning troops, as well as economic impacts to the United States – would be $3 trillion[i]. This price tag dwarfed previous estimates, but subsequent investigations by both the Congressional Budget Office and the Joint Economic Committee of Congress found our estimate to be broadly correct. To ensure the credibility of our analysis, we deliberately used conservative assumptions. As we will explain today, the empirical data that has come to light since the publication of The Three Trillion Dollar War demonstrates that our cost projections were excessively conservative, and that the war has had far-reaching economic consequences. In particular, the costs of diagnosing, treating and paying disability benefits for veterans of the Iraq and Afghanistan conflicts are proving to be much higher than our earlier estimates.

This morning we will focus on three issues.

First, we will discuss some of the costs that the war has imposed on the US economy.

Second, we will provide an updated estimate for the single biggest long-term budgetary cost of the current war, which is the cost of providing medical care, disability compensation and other benefits to veterans of the Iraq and Afghanistan conflicts.

Third, we will argue that such costs are inevitable and can be estimated to some extent in advance; therefore, the United States should make provisions for its war veterans at the time we appropriate money for going to war. We will recommend steps that can be taken to address this unfunded financial liability.